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Prepare a report for the board of directors of Summer Bodysuit Ltd that analyses the problems faced by the company and that sets - Coursework Example

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Prepare a report for the board of directors of Summer Bodysuit Ltd that analyses the problems faced by the company and that sets

2. To study whether bank’s request for a significant reduction in the overdraft facility granted to Summer Bodysuit Limited is reasonable. Structure of the organization The financial problems in a company arise mainly due to weakness in the structure of the organization. Jill Dempsey and Mike Greaves have good experience in the company’s business. The business model, designing and manufacturing of casual and leisure clothes aiming particularly at the younger and higher-income market, is in line with their experience. However, the weakness in the organization structure lies in lack of proper system for financial management. Financial management is a specialized area which needs expertise for efficiency in business operations. Keeble brothers’ involvement in the day to day business activities has been very limited. The business has grown well over the period of time and the order recently received from Arena, a chain of casual and sportswear stores is seen particularly important. The draft accounts from the Auditors confirm the company’s success. But, lack of suitable system for working capital management and planning in capital investment has landed the company in the current financial difficulties. Relationship with the bank and planning for the future The bank wants the company to reduce the overdraft by half over the next six months. The company had breached its overdraft limit on several occasions over the past few years. The management is aware of the fact that the patience of the bank has been wearing thin. The largest shareholder of the business is Keeble Estates Ltd, owned by David and John Keeble. Neither they are in a position to make further investments nor willing to accept investments from new investors, fearing loss of influence over the company. It is in this backdrop the analysis is done to make suitable recommendations for taking necessary actions to overcome the current financial difficulties. Business operations Dechow et al (2010) state, “the quality of a ?rm’s earnings depends on both the ?rm’s ?nancial performance and on the accounting system that measures it.” Prima facie the company has not accorded the deserved attention to accounting in the organization. The management has embarked on investment spree without making necessary arrangements for the additional working capital needed for its operations. David et al (2007) states that “overcon?dent managers underestimate risk and therefore take actions with excessive risk”. Evaluation of the business prospects involves analysis of several factors relating to the business. Schrand and Zechman (2009) state that “the overconfident managers make optimistic forecasts and in order to meet these forecasts, exhibit higher levels of fraud and earnings management.” Though the results do not in any way suggest fraud its management of finance calls for critical analysis. Gross profit margin during the last two years has been at 14.99% and 20.61% respectively which reflects the soundness of the business proposals of Jill Dempsey and Mike Greaves. The increase in capital investment and consequently working capital required additional investments which are met primarily through bank overdraft. “An overdraft facility enables businesses to obtain short-term funding - although in theory the amount loaned is repayable on demand by the bank” (Riley, 2012). The bankers are now asking the company to reduce the ...Show more

Summary

Report on Summer Bodysuit Ltd. The report as required by the Board of Directors has been prepared with reference to the following requirements based on the working results for the current year and the previous year and the balance sheets for the corresponding period as at the close of the years, and submitted for the consideration of the Board…
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Prepare a report for the board of directors of Summer Bodysuit Ltd that analyses the problems faced by the company and that sets essay example
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